Jonna Manes – Director of IR Leo Berlinghieri – President and CEO Ron Weigner – VP and CFO

Brett Hodess – Merrill Lynch CJ Muse – Lehman Brothers Jay Deanha – JPMorgan Jim Covello – Goldman Sachs Edwin Mok – Needham & Company

Welcome to the MKS Instruments first quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. And following today's presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today Thursday, April 24, 2008. Now, I would now like to turn the conference over to Ms. Jonna Manes, Director of Investor Relations. Please go ahead ma'am.

Thank you. Good morning and thank you for joining our earnings conference call this morning. Earlier this morning, we released our financial results for the first quarter of 2008. You can access this release at our Web site, www.mksinstruments.com. As a reminder, various remarks that we may make about future expectations, plans and prospects for MKS constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in today's press release and in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2007, which is on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today. While the Company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the company's estimates or views as of any date subsequent to today. We ask that you limit questions to two per firm and we will circle back as time allows. Now, I will turn the call over to Leo Berlinghieri, Chief Executive Officer and President of MKS.

Thanks Jonna and good morning everyone. Thank you for joining us on the call this morning. I'll give an overview of the first quarter, our strategies and outlook. Ron Weigner, our Chief Financial Officer, will review our financial results and guidance, and then we'll open the call up for your questions. I'm pleased to report that we started 2008 with another quarter of sequential growth. After a stronger than expected fourth quarter sales, first quarter sales increased by 5% sequentially to $193 million and we exceeded the high end of our guidance. We delivered strong operating performance on the higher sales volume and non-GAAP earnings increased to $0.39 per share, which also exceeded our guidance. With our broad technology portfolio, we enable advanced processes and solve process problems in many markets. Our first quarter growth was driven by increased demand in semiconductor, solar and flat panel display markets. One of our goals is to continue to grow faster than our core served market in wafer fab equipment. Our first quarter sales demonstrate that we continue to make progress. Sales to semiconductor OEMs grew 11% sequentially, primarily from two OEMs who we believe had end customer specific demand for tools that have high MKS content. Demand for our process critical technology was strong across all of our product groups. With strong product penetration at all major OEMs, we are well positioned when fabs select tools. In the quarter, we were impacted by the slowdown in fab capital spending. Sales to fabs were flat sequentially, after 19% growth in the fourth quarter. Our position with key fab customers remained strong and we see opportunity ahead when they increase capital spending and look to improve productivity. In addition to service and spares, we provide upgrades, retrofits and other solutions for process challenges. For…

Thank you Leo and good morning everyone. As Leo said, first quarter sales increased sequentially, primarily as a result of increased sales to semiconductor OEMs, which we believe may be related to end customer demand for specific tools that have high MKS product content. First quarter GAAP net income increased 34% sequentially to $20.4 million or $0.39 per share. Non-GAAP net earnings increased 11% sequentially to $20.6 million or $0.39 per share. Turning to the detailed financial results, first quarter sales of $193.4 million increased 5% compared to fourth quarter sales of $184.1 million. Sales to semiconductor OEMs increased 11%. Sales to fabs and other markets in total were essentially flat. However, sales to the solar and flat panel markets increased sequentially. In the first quarter, sales to OEMs represented 55% of sales, sales to fabs 11%, and sales to other markets 34%. Geographically, sales were strong in the U.S. and Europe. After a strong fourth quarter, sales to Asia decreased, primarily as a result of lower sales to a major semi OEM and fabs. Sales in the U.S. were 64% of total sales, sales in Europe were 13%, and sales in Asia were 23%. Sales to our top 10 customers were 43% of total sales. Sales to our largest customer, Applied Materials, increased to 20% of total sales from 18% in the fourth quarter. Sales to contract manufacturers of Applied and other semiconductor OEMs remained at 5% of total sales. First quarter gross margin improved sequentially to 42.3%. The 100 basis point sequential increase primarily reflects the effect of volume increase and lower overhead cost. As we planned, R&D expense increased by approximately $900,000 sequentially to $19.2 million due to increases in staffing and new product development projects. SG&A expenses were $31.7 million and included a $2.7 million foreign…

(Operator instructions) And our first question is from the line of Brett Hodess. Please state your company name followed by your question. Brett Hodess – Merrill Lynch: Merrill Lynch. Good morning. Leo, in the quarter, you obviously had surprisingly strong semiconductor business. As you mentioned, it was two particular OEMs that have a lot of MKS product on their system. Do you continue to see a rich mix like that even in a slower environment, because if you look at your sequential decline that you're projecting for the next quarter, it's a lot less than the shipment declines that your OEM customers have talked about already.

Well, I think, Brett, we obviously have been able to grow share over time and that's always been the objective, and we showed some results that can demonstrate that over the long term. And so, I don't know what exactly the mix will be. We don't know in advance what the lead times that we have and some of the lead times even the OEMs have, what that mix will be. But, I think we expect a drop in semi OEMs, but we would expect some make up in some of the non-semi business. Certainly, with overall guidance being declined, we are expecting the semi OEMs to be deeper than any growth we can get in some other markets.

Yes, and don't forget, Brett, as I mentioned, 55% of our sales are direct to the OEMs, so not the whole total. Brett Hodess – Merrill Lynch: And the second question I had was, given where the gross margins are looking like this quarter, 40% to 41% on that kind of revenue drop, if we look back, that's not that much of a drop really, it's sort of in the range you were at back at those revenue run rates last year. So, is the move to manufacturing in China starting to have some impact in keeping your margins from having that much decline, or are there other cost offsets in the actual cost of goods sold?

Certainly, it's one of the factors that helps us reduce some of our cost of goods sold. But certainly as you know, last year we made progress in reducing our warranty expense and we're taking initiatives to reduce redundant and/or unnecessary overhead expenses as well. And to a lesser extent, as you know, it's more challenging to reduce purchase material costs, but we are still making some modest progress in those areas as well. So, it's a combination of things, Brett, that will help us on the margin side. Brett Hodess – Merrill Lynch: Thanks a lot.

Thank you. Our question is from the line of CJ Muse. Please state your company name followed by your question. CJ Muse – Lehman Brothers: Yes, good morning. Thank you for taking my question. I guess what I'm trying to get at with my first question is where we think we could bottom on your overall semi business. Back in '05, you were at $85 million. This quarter, it looks like you're around $128 million. Considering where you have taken share and where you penetrated new accounts, where do you think that business could bottom, given the current run rate that you are seeing right now and the visibility you have right now?

I think all we can probably comment on in terms of visibility, because obviously from an order standpoint, we don't have that much visibility, I think all we can comment on is what you hear each of the OEM customers on their calls and what the forecasters are saying. And it sounds like it's somewhere in the range -- from what I've heard in the last week or two, somewhere in the range of 10% to 25%. I haven't heard anything beyond that yet, either short term or long term. So, I can't give you a specific number. I know that range is pretty broad, but I think that's what we are hearing externally and with customers that that range is pretty broad right now. CJ Muse – Lehman Brothers: Okay. And I guess moving over to display, can you give a little bit more color on the trajectory there of revenues and the linearity that you expect throughout the year?

Well, most of that business in displays is obviously to a few major OEMs in that business and it really depends on their ordering patterns. So, I think the reason displays can be lumpy is they may tend to order depending on where they're building product, how they're having it manufactured, where they're having it manufactured, whether they're going to buy and send it, whether they need it immediately. So, it's really difficult to comment on lumpiness in the display side of the business. I commented on it in the solar, because we do have a combination of end users and OEMs placing orders that are reasonable size and those things can be more lumpy. But, what we see in the flat panel is really growth for the year. After two years of decline, we started seeing it in the fourth quarter. I think we commented on it around the third quarter for the fourth quarter call. And in fact, the last two quarters have been very strong and we are hoping that continues. It certainly -- the external forecasters believe it will.

Yes. As we mentioned, our business was up this quarter because of the flat panel, and it was probably up about 5 million or 6 million or so sequentially compared to fourth quarter. CJ Muse – Lehman Brothers: I guess last question from me. Budgets right now from panel makers are up 60% plus this year. And so, I guess, if I look at what you talked about in terms of solar and assume that type of uplift in display, then that 45 million to 55 million that you talked about of incremental revenues from other businesses would appear to be solely coming from solar and display. Is that the right way to think about it?

Well, I think you have -- we've got a number of non-semi businesses, including medical, including biopharm, including some very typical industrial markets that are more stable. And I think we would expect some of those markets, if the economy slows down, may slow down with them, so there could be some drop. So I wouldn't necessarily say those are the only two. I think we point them out because they probably have the most significant growth opportunities in the next quarter or so, or two. CJ Muse – Lehman Brothers: Great, thank you.

You are welcome.

Thank you. Our next question comes from the line of Jay Deanha. Please state your company name followed by your question. Jay Deanha – JPMorgan: Thanks. JPMorgan. Good morning, a couple of questions. First on solar, in terms of your customer base in solar, do you have design wins or volume business with all three of the turnkey thin film solar equipment suppliers, specifically Applied, Ulvac and Oerlikon.

We have business with all three of those. In that group of 60, I think you would identify all -- the ones on your list would all be on that list. But then, there may be some that haven't made the list yet because they are either new startups in solar or converting from some other technology to solar. Jay Deanha – JPMorgan: Right, and do you also have exposure to the cadmium telluride First Solar business?

We have some in that area. Jay Deanha – JPMorgan: Okay. More importantly, if I look across your product line, obviously you have a very broad and very deep product line, I'm just kind of curious with in particular the thin film solar equipment suppliers, do you have opportunities for new design wins for potentially higher ASP products that you are not currently designed into, such as power products?

I think as the size of the chambers get larger and certainly as solar customers invest more in productivity improvement, we have that opportunity, and we are starting to see some of that. I think in atomic fluorine generators, there's opportunities for larger chambers. They're looking to add chamber clean and that's a trend -- beginning of a trend. So, that would bring a higher ASP product to that. Some of the RF power is in higher powers, which would provide that opportunity. So, I would believe there's opportunity for higher ASP in some of those areas. Jay Deanha – JPMorgan: So, basically what I'm getting at is I'm wondering if you have an opportunity for larger revenue per tool down the line with some of your existing solar customers.

I think that's true. Jay Deanha – JPMorgan: Okay. Then lastly, in terms of once these major thin film solar factories start coming up, as this year unfolds and in particular next year, what kind of direct to the factory opportunity do you see, kind of like your direct to the chipmaker business right now, which probably isn't really very much this year, I would think, and how does the integrated subsystem business get impacted by solar?

Okay. If I understood, Jay, correctly, what might happen in direct sales to solar manufacturers going forward (inaudible) especially do with fabs for semiconductor, I think certainly RGAs can be used in solar and they've demonstrated they have been successful at some places. So, we have an opportunity. Those typically would not sell to an OEM. The yield management software, as you start thinking about solar manufacturers looking to improve yield, I don't know how much investment previously they had made in yield management software, but we believe there's some opportunity there. With the acquisition of YDI, we think there may be some opportunities in that area, and as we also have the Umetrics acquisition we did with multivariate analysis. So, we believe there's an opportunity for that. And there may be cases for -- most of the ASTRONs and RF powers would be sold directly. The other exception would be, because this is a relatively new and growing market, like semiconductor used to be years ago, some of the fabs are still building their own equipment. And so, we have had opportunities and we continue to see opportunities to sell MKS subsystems or instruments or components directly to the fab as they build their own tools. I think they feel there's some proprietary knowledge they have in producing panels and that they've opted to build their own tools. So that certainly is the other possibility. It's a little different 30 years ago, what we did with the fabs, but I think that there's some opportunity for that. It could be very large as well. It depends on how long they continue to do that. Jay Deanha – JPMorgan: Thank you very much.

You are welcome.

Thank you. Our next question is from the line of Jim Covello. Please state your company name followed by your question. Jim Covello – Goldman Sachs: Goldman Sachs. Thanks guys so much, good morning, especially you taking my question. Just one real simple quick – well, one quick question. If we could look out three to five years pro forma, what do you think your mix of business is semi versus non-semi? And then, within the non-semi, how does that – what does that look like, and if you could talk about what that would mean for margin implications? Thanks.

We probably can't answer your question quite the way you would like to have it answered, which would be complete. I guess what we can say is we have played around with models of a 60/40 semi/non-semi. But, without really -- and you know, it seems like nobody can predict one year in the semi business. I'm not sure how they predict three to five. So, I don't even know what we use for a basis to give you an answer. But, if semi were to slow down completely, then maybe 60/40 is too much semi, I don't know. But, based on at least projections, we have talked about maybe a 60/40 split would be reasonable. If solar were to pick up and stay strong and maybe one of these markets in Homeland Security or greenhouse gases, as people get more and more concerned about the environment, were to takeoff, maybe it's higher. But, I don't think it's going to be -- I don't think we are sitting here planning a 40/60 semi/non-semi. So I would say that that's probably the best answer I can give you today. Jim Covello – Goldman Sachs: Thank you.

You are welcome.

Thank you. And we have time for one final question today and our final question comes from the line of Edwin Mok. Please state your company name followed by your question. Edwin Mok – Needham & Company: Hi, Needham & Company. First, I might have missed you on your guidance. Did you guys give color in terms of how much non-semi business you expect for the coming quarter?

No. I think what we commented on is we expected the OEMs to go down and we expected that the solar and flat panel would be up sequentially, but we didn't give that level of detail. Edwin Mok – Needham & Company: That's fine. The second question is more strategic. So, MKS has done a good job in terms of acquisition and leveraging acquisition to grow. I was just curious, given that solar and LCD is growing right now and solar looks like it will have the longest growth trajectory, any thought about acquisition related to that area? And if so, what kind of technology would be a good fit for that?

I can't comment specifically on any particular market or technology we'd be looking at, interested or not. I guess I would comment on it this way. Our focus has been around technology obviously. So, we are always looking at possibilities of good, solid technology companies. And because our objectives are always to grow faster in our core served markets, we are looking for companies that have higher growth potential going forward than maybe historically they've had. Obviously, semi has been a great market to bring in acquisitions and consolidate and integrate and it has given some competitive advantage, I believe, in its greater products as well, and also leveraging the infrastructure, like sales and service and manufacturing. I think we would continue to look and I don't think we would exclude non-semi markets in those areas. I would caution though it's very uncertain today who is going to win in the solar -- you've got a lot of solar players out there. As I mentioned, in a relatively small market, we have 60 customers we are dealing with, with a lot of different technologies, and I think it's very unclear who is winning. So, we'd be very careful, but anything is a possibility, I would say. Edwin Mok – Needham & Company: Great, that's all I had. Thanks.

Thank you. And we actually do have one final question and that question is a follow-up from the line of Jay Deanha. Please go ahead. Jay Deanha – JPMorgan: Yes, hi. Can you hear me?

Yes, Jay. Jay Deanha – JPMorgan: Okay. Looking forward into 2Q, can you give a sense as to what the percentage decline is embedded into your guidance for semiconductor and what the change is for flat panel and solar? Just trying to get some granularity on your revenue guidance.

I can't give you those details at this point. We have -- our forecast is made from the bottom up. There's some overlap in some areas. It's tough enough to separate all the information at the end of a quarter. In the forecast, it becomes even a little more difficult. I think all I can comment is, obviously, the OEMs being up was a bit of a surprise for us as high as they were, when we thought our guidance was a little lower for the first quarter. We absolutely expect that the OEMs will be down and some of the non-semi could be down as well. But, we believe flat panel and solar will be up sequentially. Some of the other non-semi that's more traditional industrial markets could be down, but just based on the economy being a little sluggish. Jay Deanha – JPMorgan: Okay. And then, one last question if I could and then I'm done. It's pretty clear to us that Applied in particular, but also Oerlikon and Ulvac are talking about a pretty sharp ramp of shipping their machines starting later this year, but in particular next year. So, it looks to me like the opportunity in thin film for subsystems is reasonably decent now, but really starts to hit a more significant ramp later this year and into next year. Is that congruent with what you're expecting?

I think the comment we had about the double or tripling of the solar business, at 6 million times 4, that wouldn't double nor triple it. So, I think we are in line with -- there has to be higher growth in the second half of the year than there was in the first quarter at least. So, we would be consistent with that. Jay Deanha – JPMorgan: Okay, thank you very much.

Thank you.

Thank you. And there are no further questions at this time. I'll turn it back to management for any closing remarks.

Great, thank you. Thank you again everyone for joining us on the call this morning. While we expect to see a decrease in our semiconductor business in the second quarter, as we commented on, we are optimistic about our long-term growth opportunities in non-semi and semi markets as we continue to execute on the growth strategies we discussed. Thank you for your interest in MKSI. This concludes our comments.

Thank you, sir. Ladies and gentlemen, that does conclude the MKS Instruments first quarter earnings conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3000, using the access code of 11111743 followed by pound key. ACT would like to thank you for your participation. You may now disconnect.